Faculty Advisor

Swift, Andrew W.

Abstract

Harry Markowitz pioneered Modern Portfolio Theory which suggested that portfolio risk should be quantified by variance. The required elements for this theory are the mean vector for stock returns and the covariance matrix to evaluate risk. Two tests were run on the three methods for estimating the covariance matrix: Sample covariance, single-index, and shrinkage. The shrinkage method performed the best in the Simulated Data test, while the single-index method performed the best in the Moving Window Minimum Variance test.

Publisher

Worcester Polytechnic Institute

Date Accepted

January 2004

Major

Mathematical Sciences

Major

Actuarial Mathematics

Project Type

Major Qualifying Project

Accessibility

Restricted-WPI community only

Advisor Department

Mathematical Sciences

Advisor Program

Mathematical Sciences

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